Are Store Brands Set for a Big Growth Spurt?
By Tom Ryan
National brands saw outsized growth in the first quarter as consumers stocked up in the initial stages of the coronavirus pandemic, but store brands expanded even faster.
According to data provided to the Private Label Manufacturers Association (PLMA) by Nielsen, first-quarter sales of store brands in U.S. retail outlets jumped 14.6 percent year-over-year, ahead of the impressive 11.5 percent gain for national brands.
Among channels, store brands gained 16.6 percent at mass (mass merchandisers, club and dollar stores), 12.7 percent at supermarkets, and 13 percent at drug stores, versus 10.1 percent, 15 percent and 7 percent for national brands, respectively.
A survey of 2,000 shoppers by research consultancy Magid taken in two stages — the beginning of April and the start of May — found the top reason consumers tried a private label product, cited by nearly half, was because their preferred brand was out of stock, followed by the desire to save money, 35 percent.
Sixty percent that made a switch said that they are “likely to continue buying private label brands.”
Store brand growth in recent years has been attributed to improvements in the development and promotion of labels, including quality upgrades, expanded price tiers and extensions across categories. Stores have been using private labels for differentiation, negotiating leverage with national brands and enhancing margins. Consumers have also become less biased when it comes to purchasing retailer-owned labels.
Private label sales grew during the Great Recession as consumers traded down to less expensive and store brand options and that’s expected to happen again.
A Wall Street Journal article on the potential for store brands to achieve market share gains stated, “In the previously unloved food business, grocers and brand owners such as Kraft Heinz Co. are more obvious beneficiaries of the coronavirus crisis. As recession bites, though, private label companies will likely take a bigger share of the spoils.”
Do you see more factors driving rather than holding back private label growth in the CPG space over the next several years? Will the expected economic downtown due to the pandemic influence store brand purchases any differently than past downturns?
Comments from the RetailWire BrainTrust:
Retailers have certainly gained the upper hand in many categories. With consumers becoming less brand conscious because of supply shortages, retailers have pressed the advantage and strengthened their position. Of course they built the trust and credibility by not sacrificing the quality.
Suresh Chaganti, Co-Founder and Executive Partner, VectorScient
As the economy declines, it’s private label’s time.
During the 2008 recession, more consumers turned to private label for affordable pricing. Surprisingly, many shoppers remained loyal even as the economy picked up due to the store brands’ quality and innovation.
Private label innovation helps retailers adapt to consumer trends to personalize the shopping experience. Retailers’ assortments now reflect consumers’ diverse needs like organic and vegan, and recipes with less sugar, salt, and fat.
Even during boom times, a 2018 U.S. survey found 85 percent consumers trust private label brands and 81 percent buy private label products during every shopping trip.
That’s because private labels have evolved into legitimate brands whose exclusivity can spark loyalty, variety and a competitive edge.
Lisa Goller, Content Marketing Strategist
Similar to increases in digital purchases for groceries and the use of curbside services, the pandemic has also brought about impressive growth in private label purchases. And as with those other shifts, I expect to see the gains in these areas recede from current levels, but certainly stay above comp levels from before the pandemic. The overall quality in private label goods, especially in the CPG space, continues to increase and consumers who have shifted to private label due to either lower price points or in-stock availability are recognizing their value. And it’s this higher quality, coupled with retailers’ desire to control as much of the supply chain as possible, which should see some of those gains maintain traction.
Ryan Grogman, Managing Partner, Retail Consulting Partners (RCP)
Private label brands that offer quality and value have been gaining ground for some time now, and the pandemic gave them a huge boost. The market share expansion for store brands is likely to continue, especially as essential items remain hard to find and consumers stay in “prepper” mode.
Kathy Kimple, Chief Retail Officer, FitForCommerce
I read a similar report yesterday and I agree that private label will have a renaissance of sorts now and after the pandemic. Now is the time for retailers to review their catalog and ensure they are not only sharp on their pricing but ensure the price gap between the private label and national brand is within reason where the customer will see the value of private label and not see it as a cheap substitute for the national brand label.
Richard Hernandez, Director, Affiliated Foods, Inc.
Retailer private labels have done an excellent job positioning themselves with consumers over the last few years. Gone are the days when the “best” private labels were b-grade product in the package. Private labels now offer excellent product quality, unique flavors and position themselves as another major brand on the shelf. During the pandemic, consumers were looking for more traditional products at value pricing and private label fulfilled the need. Private label has also moved into the natural and organic space and the consumers have positively responded to these products. As long as retailers keep their eye on private label quality and meeting consumer trends, it is all upside for private labels into the future.
Michael Terpkosh, President, City Square Partners LLC
A surge based on the preferred brand being out of stock is not exactly high praise. But 60 percent saying they are likely to continue use of a store brand once they tried it is indeed a great endorsement. I think it’s as simple as taking a page out of Costco’s Kirkland story. Extreme quality and extreme value. That equates into quickly built, if not instant, consumer loyalty. Differentiation and loyalty are the pillars of proprietary branding. It’s an opportunity available to almost every retailer.
Jeff Sward, Founding Partner, Merchandising Metrics
When store brands look and perform as well or better than national brands, retailers will benefit from sales to a higher spending consumer than when store brands are strictly private label knock-offs. Brand naming and package design are critical. Store brands need to be properly positioned, not understated nor overstated.
David Biernbaum, Founder & President, David Biernbaum & Associates LLC